I had a chance to present my research with Joohee Oh about the value of free goods at the recent Techonomy conference in Tuscon. We now to have the full video and transcript available to read and view. As I wrote about here and as Andy McAfee described, I’m convinced that we are in the midst of a major technological revolution that is not being fully reflected in official government statistics, most notably, the GDP and productivity numbers

According to official government data, there has bee zero growth in the information sector. But we have all seen an explosion of new digital products and services, from Wikipedia and Facebook, to Youtube and GPS mapping. The official data say this sector is the same size as what it was in the 1960s! Now how can that be? Obviously, there’s some major measurement problems in the way we keep our statistics, and that’s a real concern because, as the saying goes, you can’t manage what you don’t measure. So we need to come up with a better way of measuring things. That’s what we’ve been working at the MIT Center for Digital Business.

Here are a few highlights from my talk:

We start with the fact that many digital goods are delivered for free. In some cases, they're funded through advertising. In many other cases, users just contribute their time; they develop content and make it available. And maybe there’s a little bit of contributions or advertising that pays for the bandwidth, but those costs are relatively minimal. We know that there’s just been an explosion of the availability of these goods because you can count the number of bits produced; you can count the number of Wikipedia articles produced, for example--and those have grown ten-fold since 2004.

Counting bits is a start, but what we really want to know is not just the number of bits but the actual value of information goods. This is where the bug in the GDP measurement occurs; because GDP measures only the total amount spent on goods and services, not their value. So what happens if the price is zero? Well, zero times any quantity is still zero. So you could have an enormous of explosion of bits or articles or whatever else and the statisticians still see it as a big fat zero contribution for our GDP

Traditional metrics are really missing what’s going on in this information economy because so much of the digital economy is a free economy. We found a number of other ways to go about measuring it. One is to look at the time that people spent, and that is something that we do. If you just look at the dollars, you’re going to get a sense that actually the economy is stagnant or even shrinking. But we calculate the demand curve for information goods based on the time spent. This is a very different approach than the traditional GDP accounting, but it’s one that we think better captures the real value that goods and services are producing in the economy.

After you do the math and plug in the numbers, we estimate that the annual welfare gain from all these free goods is about $300 billion. Now, that’s the average over the past ten years or so. And that works out to about $1,400 per person.

We also came up with a way to calibrate the value of this time which can you hear more about if you watch the full video. I will continue to write about our findings as the research unfolds.